Vermeulens has released its market outlook report for the second quarter of 2018. Key points include:
Construction price escalation nationally has trended to 4 percent per annum for the second quarter of 2018. Due to consistent increases in construction costs over the past few years, the long-term trend for the Vermeulens Index is up to 3.4 percent from 3.3 percent.
Interest rates are up due to solid growth and full employment. In view of realized and expected labor market conditions and inflation, the Federal Open Market Committee decided to raise the target range for the federal funds rate to between 1.75 and 2 percent.
Commodity prices rose 6.3 percent in Q2 before reversing and negating any changes in commodity pricing over the quarter. Energy indices bounced back from the sharp decline experienced in Q1, while metals indices are trending towards new lows for 2018.
Consumer price increases have slowed after a positive trend in the second half of 2017. Due to decreasing growth in consumer prices over the last decade, the long-term average has declined from 2.6 percent to 2.5 percent.
Construction dollar volume has increased by 7.4 percent year over year (June 17/June 18). Year over year growth can be attributed to Residential (9.8%), Infrastructure (3.7%), and Non-Residential (5.6%) spending.
So far, 2018 has seen the New York Stock Exchange rise and fall by 11 percent, for a net zero change since the beginning of the year. The current trend is positive.
Six month rolling average job growth at the end of Q2 sits at 224,000 jobs. This is a reversal of the moderating trend since the second half of 2014. Labor force participation rates are high by historic measures, but do not appear to be causing inflationary pressure, perhaps due to increased productivity.
We are at full employment in the construction sector. Q2 has seen the addition of 59,000 construction jobs (0.8%) nationwide. Wage and profit increases in the sector will continue to draw employment from new entrants and other sectors.
Gross Domestic Product maintained a strong annualized growth rate of 4 percent through Q2 2018, however long-term expectations have fallen slightly. GDP growth since 1990 follows a 2.5 percent trendline, however, the past decade is more in line with a 2.2 percent annual growth rate.
The Market Outlook – Q2 2018 report is available from Vermeulens.